Well I was wrong. You always put yourself on the line by writing a blog and last nights action certainly blew away my short term analysis. It is a shame- I had been bearish and right early in this distribution process showing the 07 top parallel, the topping patterns in Equities, the Double Top in AUD etc but I overtraded. Ultimatly, I tried to buy support last night and got caught. It seems the whole market got caught and that is how these sell offs manifest themselves. It is all about leverage and liquidity- when levels break there is forced selling, liquidation and it all spirals out of control in this electronically driven environment. If anything, this whole move shows the importance of obeying stops at all times. Really, anything can happen at this moment.
Right now we are in panic mode. Panics do not make for good shorting opportunities as the bulk of the move has played out. If you want to short down here you will have to have very wide stops which dont justify the risk/reward. Equally, stepping in front of this before confirmation is a ticket to the poor house.
This is what I am thinking. We have levels where the S&P500 can make a low at 1195 then all the way down to 1105. We are at that first level come last nights action. This correlates to 4075/4100 ASX200. We again saw a huge volume spike last night which is indicative of a capitulation low. Today is 610 Trading days out from the March low thus there is the chance of a turn for the cycles men. I also think that there is the very real possibility of government intervention or a FED announcement today or coming into the weekend to calm the market. The game is rigged and has always been rigged from the long side- that is why shorting is just so tough. I have seen this time and time again in my experience. I do think we see a strong snapback given some of these factors and this will last for a period of a week or so (think flash crash) but I am just not certain yet if it is today. We will then see one more retest of the low before a genuine bottom and intermediate low can form.
Right now, the only way I can play this is with tight risk via futures. Futures offer the ability to be wrong and get out of the market without too much pain. The time for buying a basket of stocks is not clear yet.
Here is a chart of the ASX200 target levels coming into today at 4075/4100
ABC target at 4100/4130
ASX200 Fib Retrace
50% retrace and prev June 2010 high at 4075